Thursday, June 23, 2011

Telstra and NBN deal marks historic day for the industry

Nigel Pugh, Consulting Director, Ovum

AUSTRALIA: Today's announcement by Telstra that it has signed the NBN definitive agreement with NBN Co. and the Commonwealth marks an historic day for the industry and especially for Telstra. The deal is similar in structure to what had been pre-announced in the June 2010 non-binding Heads of Agreement and Ovum views the deal as positive step forward for industry.

It's clear that Telstra has done its own cost benefit analysis for its participation in the deal versus the alternatives and has determined this is the best approach in the current environment. If the remaining hurdles are passed (ACCC acceptance of Telstra's structural separation undertaking & migration plan and Telstra's shareholder vote) then Telstra will have a clear strategic direction for operation of its retail and wholesale functions in an NBN world. This will also be a positive for NBN Co. as the key hurdles to its nationwide rollout will have been overcome.

Furthermore, although there has always been an overhang to the deal with regards to a change of government, our initial reading of the cessation clauses don’t position this deal as a poison pill if there is a change of government at the next election. NBN Co. will have to reach 20 percent fibre coverage for the compensation payment to occur and, based on our reading of NBN Co.’s three year corporate plan, we think this will be a stretch to achieve by 2013.